Cellular and molecular aspects of chemical carcinogenesis in lining epithelia are studied in mouse epidermis by in vivo and in vitro techniques. The initiation event in skin carcinogenesis is highly correlated to an alteration in the program of terminal differentiation of epidermal cells. In cell culture, epidermal differentiation is regulated by the concentration of extracellular calcium. Induction of terminal differentiation by increasing the calcium concentration in the culture medium causes a two- to threefold increase in the level of intracellular-free calcium. Cells of initiated lines which survive in medium with high calcium showed an altered response to increased externa calcium, with a sharp four- to ninefold peak of intracellular free calcium in all cells within 2 minutes. These differences in intracellular calcium between normal and initiated keratinocytes may be related to alterations in phosphoinositide metabolism. The ras oncogene is highly correlated to the initiated phenotype in epidermis. introduction of an activated ras gene into normal keratinocytes alters their phenotype to that of papilloma cells. Chemically induced papillomas yield an activated ras oncogene with a mutation at codon 61. Papilloma cells and initiated cells are resistant to the differentiation-inducing effects of phorbol ester tumor promoters. Since phorbol esters induce differentiation in normal cells, papilloma cells can be selected among an excess of normal cells in culture by their ability to continue to proliferate in culture medium containing phorbol esters. In culture, introduction of the v-fos oncogene into initiated cells with an activated ras results in their conversion to malignancy. TGF-beta is elaborated by normal keratinocytes induced to differentiate by TPA or by increasing external ca?cium. This secretion is not altered by introduction of v-ras into normal keratinocytes. In vivo, several classes of benign tumors can be induced by initiation and promotion. Papillomas with a high risk for spontaneous conversion to carcinomas are also most responsive to chemical-converting agents. Malignant conversion can be accomplished by a single injection of cisplatin.